American States Water (AWR) Poised To Gain: Time To Buy?

American States Water Company (NYSE:AWR) currently draws strength from its sturdy customer base. The company provides fresh water, wastewater services and electricity to 259,000 customers throughout 10 counties in California. It also distributes electricity to nearly 24,000 customers through its Golden State Water Company subsidiary.

American States Water's systematic investments to strengthen existing infrastructure are anticipated to drive the company’s performance. Notably, the company is steadily investing toward strengthening existing water infrastructure.

It is a prerequisite for a water service provider to have ample water right, and American States Water is no stranger to the trend. As of Dec 31, 2016, the company had adjudicated groundwater rights and surface water rights of 74,332 and 11,335 acre feet per year, respectively. In fact, a major portion of the company’s total revenues come from its Water segment.

Further, the company enjoys one of the highest credit ratings in the water utility space. In May, Standard & Poor’s Ratings Services (S&P) affirmed the A+ credit rating on both American States Water and its subsidiary, Golden State Water Company. The strong credit ratings of American States Water are likely to aid the company in securing funds from the market amid the rising interest rates.

American States Water is not so active in making accretive acquisitions like its peers. However, consolidation being the need of the hour in the fragmented U.S. water utility space, the old infrastructure needs ample investments. Such huge investments are easier for bigger players to make. Notably, utilities like American Water Works Company Inc. (NYSE:AWK) , Connecticut Water Service Inc. (NASDAQ:CTWS) and Aqua America Inc. (NYSE:WTR) are active players in the industry that are expanding their market reach through acquisitions.

The company’s focus still remains on a single state — California. Consequently, the financial performance of the company to a large extent is dependent on the political, water supply, labor, utility cost and regulatory risks as well as economic conditions, natural disasters and other risks affecting the state.

Price Movement

American States Water returned 29% in the last 12 months, outperforming the 21.5% rally of the industry it belongs to.

Zacks Rank

American States Water carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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